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Zoomlion Clients Validate Sales Numbers, Barclays Maintains Rating Citing Weak Hearsay Evidence

May 29, 2013 - Hong Kong

Zoomlion Heavy Industry Science and Technology Co., Ltd. issued clarification announcements in Hong Kong and Shenzhen exchanges on 28 May 2013, citing its clients' support for its operational data against previous media reports questioning the leading heavy machinery producer's financial data. Zoomlion also reasserts its commitment to transparency and high corporate governance standards as it engages in strategic adjustment amid recent market reshuffling. Barclays Capital published a report on 29 May 2013, which indicated that, the Company's short-term stock price would be suppressed, while pointed out the related report was nothing new and downside pressure for the stock price was limited. Barclays Capital maintained its investment rating as "market weight" and targeted price of H-share at 7.98 HK dollar.

Exchange or replacement of products is normal industry practice subject to local market changes

Zoomlion notes in the announcements that the controlled levels of product exchange or replacement belongs to the normal course of operation across all industries and peers. The exchange or replacement of goods is due to reasons including product defects, change in commercial terms, change in consumers' specifications and requirements, technological advancement and risk control measures of the Company, etc. For instance, a client might wish to swap a previous order of 43-meter pump trucks for that of 52-meter pump trucks, in which case a replacement occurs in the Company's sales record.

Zoomlion reaffirms that all incidents relating to exchange and replacement of products of the Company were recognized strictly in accordance with the applicable accounting standards. The aggregate sales amount of the Company in August 2012 and November 2012 was comparatively less than that of the whole year of 2012 and the aggregate amount of products returned in the same period was higher than that of the whole year of 2012 due to the following reasons: the continual market decline which was beyond expectation, stringent commercial terms of contracts and the overall strengthened risk control of the Company, etc.

Three Zoomlion clients validates authenticity of deals, testifies to compliant sales recognition practice While Zoomlion reaffirms that it recognizes sales in strict in accordance with PRC GAAP and IFRS, the three clients in central China cited by the previous media report ( Hunan Qirun Industrial Co., Ltd., Wuhan Yeed Construction Services Co., Ltd., and Mr Wu Pingren) gave formal written statements to confirm authenticity of their product procurement behavior with the Company.

According to Zoomlion and these three clients, in 2012, the sales revenue of the Company derived from Hunan Qirun Industrial Co., Ltd. was RMB31.588 million, of which RMB31.588 million was attributable to concrete machinery and equipment; in the same period, the sales revenue of the Company derived from Wuhan Yeed Construction Services Co., Ltd. was RMB275.1236 million, of which RMB181.4804 million was attributable to concrete machinery and equipment; in the same period, the sales revenue of the Company derived from Mr Wu Pingren was RMB46.2173 million, of which RMB46.2173 million was attributable to concrete machinery and equipment. (Please refer to the attachment for related announcements).

Q4 2012 strategy adjustment resulted in better profit level management than industry peers

In their Announcements, Zoomlion acknowledged market difficulties in Q4 2012 onwards in the context of a macro-economic slump. The industry leader took the initiative to readjust the operation strategies, strengthen control on recovery of trade receivables and improve commercial terms of the contracts in the interest of risk control and quality improvement. As a result, sales revenue in Q4 2012 decreased by 31.7% and net profit by 82.4% year-on-year, , putting the company in a better position than its other six public-listed competitors who recorded an average profit decline of 8.2% higher.

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